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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: February 27, 2004 Commission File Number: 1-5197
Plymouth Rubber Company, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733970
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
104 Revere Street, Massachusetts 02021
(Address of principal executive offices) (Zip Code)
(781) 828-0220
Registrant's telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the receding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this
report.
Class A common stock, par value $ 0.01 - 810,586
Class B common stock, par value $ 0.01 - 1,248,390
PLYMOUTH RUBBER COMPANY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements: Page No.
Condensed Consolidated Statement of Operations and
Retained Earnings (Deficit) . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statement of Comprehensive
Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheet . . . . . . . . . . . . . 4
Condensed Consolidated Statement of Cash Flows . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 11-18
Item 3. Quantitative and Qualitative Disclosure about
Market Risks . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Controls and Procedures . . . . . . . . . . . . . . . 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 20
Item 2. Changes In Securities . . . . . . . . . . . . . . . . 20
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders . 20
Item 5. Other Information . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS (DEFICIT)
(In Thousands except Share and Per Share Amounts)
(Unaudited)
First Quarter Ended
-----------------------
Feb. 27, Feb. 28,
2004 2003
---------- ----------
Net Sales . . . . . . . . . $ 14,822 $ 13,543
Cost of products sold . . . 12,314 11,771
---------- ----------
Gross margin. . . . . . . . 2,508 1,772
Selling, general and
administrative . . . . 2,872 2,766
---------- ----------
Operating income (loss) . . (364) (994)
Interest expense. . . . . . (428) (417)
Other income (expense), net 22 41
---------- ----------
Income (loss) before taxes (770) (1,370)
Benefit (provision) for
income taxes . . . . . . . (27) (10)
---------- ----------
Net income (loss) . . . . . (797) (1,380)
Retained earnings (deficit)
at beginning of period. . (6,531) (4,227)
---------- ----------
Retained earnings (deficit)
at end of period. . . . . $ (7,328) $ (5,607)
========== ==========
Per Share Data:
Basic Earnings (Loss) Per Share:
Net income (loss) . . . . . $ (0.39) $ (0.67)
========== ==========
Weighted average number of
shares outstanding. . . . 2,058,976 2,058,976
========== ==========
Diluted Earnings (Loss) Per Share:
Net income (loss) . . . . . $ (0.39) $ (0.67)
========== ==========
Weighted average number of
shares outstanding. . . . 2,058,976 2,058,976
========== ==========
See Accompanying Notes to Condensed Consolidated Financial Statements
2
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
First Quarter Ended
-----------------------
Feb. 27, Feb. 28,
2004 2003
---------- ----------
Net income (loss) . . . . . $ (797) $ (1,380)
Other comprehensive income
(loss), net of tax:
Foreign currency
translation adjustment . 73 87
---------- ----------
Other comprehensive
income (loss). . . . . . 73 87
---------- ----------
Comprehensive income (loss) $ (724) $ (1,293)
========== ==========
See Accompanying Notes to Condensed Consolidated Financial Statements
3
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
Feb. 27, Nov. 28,
2004 2003
---------- ----------
(Unaudited)
Assets
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 4 $ 10
Accounts receivable, less allowance for
doubtful accounts of $386 and $447 at
February 27, 2004 and November 28, 2003. . . . . 10,727 11,776
Inventories:
Raw materials . . . . . . . . . . . . . . . . . 4,164 3,952
Work in process . . . . . . . . . . . . . . . . 2,647 2,472
Finished goods. . . . . . . . . . . . . . . . . 6,967 5,951
---------- ----------
13,778 12,375
---------- ----------
Prepaid expenses and other current assets. . . . . 949 924
---------- ----------
Total current assets . . . . . . . . . . . . . 25,458 25,085
---------- ----------
Plant Assets:
Plant assets . . . . . . . . . . . . . . . . . . . 48,959 48,694
Less: Accumulated depreciation. . . . . . . . . . (30,145) (29,360)
---------- ----------
Total plant assets, net. . . . . . . . . . . . 18,814 19,334
---------- ----------
Other Assets:
Goodwill. . . . . . . . . . . . . . . . . . . . . . . 503 481
Other long-term assets. . . . . . . . . . . . . . . . 384 415
---------- ----------
Total other assets. . . . . . . . . . . . . . . 887 896
---------- ----------
$ 45,159 $ 45,315
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt. . . . . . . . . . . . . . . . . . $ 14,547 $ 14,031
Accounts payable . . . . . . . . . . . . . . . . . 9,763 9,098
Accrued expenses . . . . . . . . . . . . . . . . . 4,153 4,538
Current portion of long-term obligations . . . . . 1,659 1,768
---------- ----------
Total current liabilities. . . . . . . . . . . 30,122 29,435
---------- ----------
Long-Term Liabilities:
Borrowings . . . . . . . . . . . . . . . . . . . . 7,332 7,577
Pension obligation . . . . . . . . . . . . . . . . 5,615 5,486
Deferred tax liability . . . . . . . . . . . . . . 149 143
Other. . . . . . . . . . . . . . . . . . . . . . . 2,053 2,062
---------- ----------
Total long-term liabilities. . . . . . . . . . 15,149 15,268
---------- ----------
Committments and Contingencies
Stockholders' Equity:
Preferred stock, $10 par value, 500,000 shares
authorized: no shares issued and outstanding . . -- --
Class A voting common stock, $0.01 par value,
1,500,000 shares authorized, 810,586 shares
issued and outstanding . . . . . . . . . . . . . 8 8
Class B non-voting common stock, $0.01 par value,
3,500,000 shares authorized, 1,281,304 shares
issued and 1,281,390 shares outstanding. . . . . 13 13
Paid in capital. . . . . . . . . . . . . . . . . . 11,154 11,154
Retained earnings (deficit). . . . . . . . . . . . (7,328) (6,531)
Accumulated other comprehensive loss . . . . . . . (3,774) (3,847)
---------- ----------
73 797
Less: Treasury stock at cost (32,914 shares) . . . (185) (185)
---------- ----------
Total stockholders' equity . . . . . . . . . . (112) 612
---------- ----------
$ 45,159 $ 45,315
========== ==========
See Accompanying Notes to Condensed Consolidated Financial Statements
4
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
-----------------------
Feb. 27, Feb. 28,
2004 2003
---------- ----------
Cash flows relating to operating activities:
Net income (loss). . . . . . . . . . . . . . . . . $ (797) $ (1,380)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization. . . . . . . . . 681 685
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . 1,155 988
Inventory. . . . . . . . . . . . . . . . . . . (1,322) (1,152)
Prepaid expenses and other current assets. . . (23) 160
Other assets . . . . . . . . . . . . . . . . . 35 8
Accounts payable . . . . . . . . . . . . . . . 608 1,744
Accrued expenses . . . . . . . . . . . . . . . (400) (787)
Pension obligation . . . . . . . . . . . . . . 129 117
Other liabilities. . . . . . . . . . . . . . . (15) (56)
---------- ----------
Net provided by operating activities. . . . . . . . . 51 327
---------- ----------
Cash flows relating to investing activities:
Capital expenditures . . . . . . . . . . . . . . . (7) (99)
---------- ----------
Net cash used in investing activities . . . . . . . . (7) (99)
---------- ----------
Cash flows relating to financing activities:
Net increase in short-term debt. . . . . . . . . . 426 230
Payments on term debt. . . . . . . . . . . . . . . (320) (375)
Payments on capital leases . . . . . . . . . . . . (140) (68)
---------- ----------
Net cash used in financing activities . . . . . . . . (34) (213)
---------- ----------
Effect of exchange rates on cash. . . . . . . . . . . (16) (49)
---------- ----------
Net change in cash. . . . . . . . . . . . . . . . . . (6) (34)
Cash at the beginning of the period . . . . . . . . . 10 37
---------- ----------
Cash at the end of the period . . . . . . . . . . . . $ 4 $ 3
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest. . . . . . . . . . . . . . . . $ 410 $ 500
========== ==========
Cash paid for income taxes. . . . . . . . . . . . . . $ -- $ --
========== ==========
See Accompanying Notes to Condensed Consolidated Financial Statements
5
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The Company, in its opinion, has included all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the results for the interim periods. The interim
financial information is not necessarily indicative of the
results that will occur for the full year. The condensed
consolidated financial statements and notes thereto should be
read in conjunction with the consolidated financial statements
and notes thereto for the years ended November 28, 2003, November
29, 2002, and November 30, 2001, included in the Company's 2003
Annual Report filed with the Securities and Exchange Commission
on Form 10-K.
(2) The consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business. The Company's limited liquidity under existing debt
arrangements, its working capital deficit, the recent history of
losses, the pension payment due August 2004, and the overall
risks associated with achieving the 2004 plan may indicate that
the Company will be unable to continue as a going concern for a
reasonable period of time. The consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
As of February 27, 2004, the Company had approximately $80,000 of
unused borrowing capacity under its revolving line of credit with
its primary working capital lender, after consideration of
collateral limitations.
The Company received pension funding waivers from the Internal
Revenue Service (the "IRS") for $855,000 in 2002 and $1,030,000
(of the $1,262,000 due) in 2003. These were waivers for plan
years ending November 30, 2001 and November 30, 2002, and were
conditioned on the Company satisfying the minimum funding
requirements for the plan years ending November 30, 2003 and
November 30, 2004, and on the waiver amount of $1,030,000 being
secured, in a manner acceptable to the Pension Benefit Guaranty
Corporations (the "PBGC") by September 10, 2004. The minimum
funding payment due in August 2004 is $1,533,000. Of this
amount, approximately $1,048,000 is the current year requirement
and $485,000 is a result of previous funding waivers. Management
is developing longer range financial forecasts and has engaged an
ERISA attorney to work with the Pension Benefit Guaranty
Corporation (the "PBGC") to reschedule future minimum pension
payments, including the 2004 minimum pension payment of
$1,533,000, in order to provide working capital needed to operate
profitability into future years and ultimately meet all of its
pension obligations. Should the PBGC not reschedule payments and
should the Company not be able to make all of the 2004 minimum
funding payment, the Company would be required to notify the IRS,
the Pension Benefit Guaranty Corporation, and the Pension Plan
participants. The IRS would assess an excise tax of 10% on the
amount of the payment shortfall, which would be currently
payable, and the Pension Benefit Guaranty Corporation would
impose a tax lien on the Company for the amount of payment
shortfall. The Pension Benefit Guaranty Corporation could choose
to take one or more additional actions, which could include
having the Company continue funding the plan at some level,
asking the Company for additional security, taking over the Plan,
terminating the Plan, or other possibilities. Some of these
possible actions could have an adverse impact on the Company's
liquidity, financial position, and ability to continue
operations.
On May 23, 2003, the Company received notification from the
American Stock Exchange (the "AMEX") that, as of the first
quarter of fiscal 2003, the Company was not in compliance with
AMEX listing standards, due to shareholders' equity being less
than $2,000,000 and losses from continuing operations and/or net
losses in two of its three
6
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
most recent fiscal years. In order to maintain the listing of
its common stock on AMEX, Plymouth was required to submit a plan
by June 23, 2003, subject to acceptance by AMEX, describing
actions to be taken to bring it into compliance with listing
requirements within 18 months. On June 23, 2003 the Company
submitted to the American Stock Exchange a plan describing the
program by which the Company will
be brought back into compliance with AMEX's listing standards by
the end of November 2004. On August 25, 2003, AMEX accepted this
plan of compliance and granted an extension of time through
November 2004 to regain compliance, subject to periodic review by
AMEX during the extension period. The Company is not currently
in compliance with this listing standard.
On December 31, 2003, the Company received notification from the
AMEX that the Company's Class A Common Stock and Class B Common
Stock are each subject to delisting for having aggregate publicly
held market values of less than $1,000,000 for more than 90
consecutive days. In order for the Company to maintain the
listings of its Common Stock, it was to submit a plan, subject to
acceptance by AMEX, by January 26, 2004 advising the AMEX of
actions to bring it into compliance with continued listing
standards by March 10, 2004. The Company has been considering
the feasibility of such a plan of compliance and has asked AMEX
for an extension of time to submit a compliance plan or pursue
alternatives to continued AMEX listing. The Company is not
currently in compliance with this listing standard.
Failure to make progress consistent with these listing standards
could result in the Company's shares being delisted from AMEX.
Should this occur, the Company would consider several options,
including having its common shares traded over the counter.
For fiscal 2004, management plans to increase sales through
additional marketing investments in the wholesale and retail
markets and continues to control expenses to improve
profitability and provide additional cash from operating
activities. Management also plans to work with a variety of
potential lending sources and existing lenders to acquire
additional financing, although the current focus is a financing
transaction which would increase equity and provide some working
capital needed for operations, but which would require discussion
with existing working capital and term debt lenders and
modification of existing loan agreements, including future
payment schedules.
Management believes these plans are possible to achieve but the
process is in its early stages. It is management's belief that
cash flows generated from operations, and/or additional financing
accompanied by a restructuring of existing loan agreements,
and/or a rescheduling of pension obligations will be sufficient
to meet the Company's liquidity needs during fiscal 2004.
Although management expects to be able to accomplish its business
and financing plans, there is no assurance that it will be able
to do so. The Company's plans depend upon many factors. Failure
to accomplish these plans could have an adverse impact on the
Company's liquidity, financial position, and ability to continue
operating as a going concern.
(3) Environmental
The Company has been named as a Potentially Responsible Party by
the United States Environmental Protection Agency in two ongoing
claims under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"). The Company
has also received Notices of Responsibility under Massachusetts
General Laws Chapter 21E on two sites in Massachusetts. The
Company has accrued $725,000 as of February 27, 2004 to cover
future environmental expenditures related to these
7
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
claims, which is net of $505,000 payments made to date. The accrual
represents the Company's estimate of the remaining remediation
costs based upon the best information currently available.
Actual future costs may be different from the amount accrued for
as of February 27, 2004 and may be affected by various factors,
including future testing, the remediation alternatives taken at
the sites, and actual cleanup costs. The final remediation costs
could also be subject to adjustment because of the long term
nature of the cases, legislative changes, insurance coverage,
joint and several liability provisions of CERCLA, and the
Company's ability to successfully negotiate an outcome similar to
its previous experience in these matters.
The Company has also received Notices of Responsibility under
Massachusetts General Laws Chapter 21E on three sites at the
Company's facilities in Canton, Massachusetts. In all of these
cases, the Company has taken a variety of actions towards the
ultimate cleanup, depending upon the status of each of the sites.
These activities include
investigation, assessment, containment, and remediation. The
Company has accrued $291,000 as of February 27, 2004 to cover
estimated future environmental cleanup expenditures, which is net
of $963,000 payments made to date. Actual future costs may be
different from the amount accrued for as of February 27, 2004.
(4) The following table reflects the factors used in computing
earnings (loss) per share and the effect on income (loss) and the
weighted average number of shares of potentially dilutive
securities.
First Quarter Ended (A)
-----------------------
Feb. 27, Feb. 28,
2004 2003
---------- ----------
(In thousands except share and per share data)
Basic earnings (loss) per share
- -------------------------------
Net income (loss) available
to common stockholders . . $ (797) $ (1,380)
========== ==========
Weighted average shares . . 2,058,976 2,058,976
========== ==========
Net income (loss) per share $ (0.39) $ (0.67)
========== ==========
Diluted earnings (loss) per share
- ---------------------------------
Net income (loss) available
to common stockholders . . $ (797) $ (1,380)
========== ==========
Weighted average shares . . 2,058,976 2,058,976
Effect of diluted
stock options. . . . . . -- --
---------- ----------
Diluted weighted average
shares . . . . . . . . . 2,058,976 2,058,976
========== ==========
Net income (loss) per share $ (0.39) $ (0.67)
========== ==========
8
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
(A) Options for 462,788 and 324,000 shares of common stock were
outstanding at February 27, 2004 and February 28, 2003,
respectively, but were not included in computing diluted
earnings per share in each of the respective periods because
their exercise prices were greater than the average market
price of the Company's common stock for the period and their
effects were anti-dilutive.
(5) Stock Compensation. The Company's stock option plans are
accounted for in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
No. 25"). The Company uses the disclosure requirements of
Statement of Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123"). Under APB No. 25, the
Company does not recognize compensation expense on stock options
granted to employees, because the exercise price of each option
is equal to the market price of the underlying stock on the date
of the grant. If the Company had elected to recognize
compensation cost based on the fair value of the options granted
at grant date as prescribed by FAS 148, the Company's net loss
and net loss per share would have been reduced to the following
pro forma amounts:
First Quarter Ended
-----------------------
Feb. 27, Feb. 28,
2004 2003
---------- ----------
Net income (loss)
as reported. . . . . . . . $ (797) $ (1,380)
Deduct: Total stock-based
employee compensation
determined under fair
value method for all
awards, net of related
tax effects . . . . . . . (9) (28)
---------- ----------
Pro forma net loss. . . . . $ (806) $ (1,408)
========== ==========
Earnings per share:
Basic, as reported. . . . $ (0.39) $ (0.67)
========== ==========
Basic, pro forma. . . . . $ (0.39) $ (0.68)
========== ==========
Diluted, as reported. . . $ (0.39) $ (0.67)
========== ==========
Diluted, pro forma. . . . $ (0.39) $ (0.68)
========== ==========
(6) Plymouth Rubber Company, Inc. and its subsidiaries primarily
operate through the following two business segments: Plymouth
Tapes and Brite-Line Technologies. Management has determined
these to be the Company's business segments based upon its
process of reviewing and assessing Company performance and
allocating resources. Plymouth Tapes manufactures plastic and
rubber products, including automotive, electrical, and industrial
tapes. Brite-Line Technologies manufactures and supplies rubber
and plastic highway marking and safety products.
9
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
Management evaluates the performance of its segments and
allocates resources to them primarily based upon sales and
operating income. Intersegment sales are at cost and are
eliminated in consolidation.
The table below presents information related to Plymouth Rubber's
business segments for the first quarter ended February 27, 2004
and February 28, 2003.
First Quarter Ended
-----------------------
Feb. 27, Feb. 28,
2004 2003
---------- ----------
Segment sales to
unaffiliated customers:
Plymouth Tapes. . . . . . $ 14,217 $ 13,204
Brite-Line Technologies . 605 339
---------- ----------
Consolidated net sales. . $ 14,822 $ 13,543
========== ==========
Segment operating
income (loss):
Plymouth Tapes. . . . . . $ (79) $ (558)
Brite-Line Technologies . (285) (436)
---------- ----------
Consolidated segment
operating income (loss). . (364) (994)
Interest expense. . . . . . (428) (417)
Other income (expense). . . 22 41
---------- ----------
Consolidated income
(loss),before taxes. . . . $ (770) $ (1,370)
========== ==========
(7) As of December 1, 2001 the Company adopted the SFAS No. 142, "Goodwill
and Other Intangible Assets". In accordance with the guidelines of
this accounting principle, goodwill and indefinite lived intangible
assets are no longer amortized but will be assessed for impairment on
at least on annual basis. The Company has elected to test annually for
goodwill impairment at the end of each fiscal year. Goodwill will also
be tested for impairment between annual tests if a triggering event
occurs, as defined by SFAS No. 142, that could potentially reduce the
fair value of the reporting unit below its carrying value. Through
fiscal 2001 the Company amortized goodwill over a period of five years.
Since the adoption of the provisions of SFAS No. 142, there have been
no impairment charges recognized by the Company as the fair value of
the reporting unit to which the goodwill relates has exceeded book
value.
At February 27, 2004, the Company has goodwill of $503,000 relating to
the purchase of Plymouth Rubber Eurpoa, S.A The change in goodwill
from period to period is a result of currency rate changes.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
First Quarter 2004, Compared with First Quarter, 2003
Company Overview
Key factors, which management believes have the largest impact on the
overall profit and loss of Plymouth Rubber Company, include:
(1) the level of sales has a large impact on profits. Since most of
the Company's costs (except for raw materials) are largely fixed in the
short/medium term, an increase or decrease in sales affects profit
significantly.
(2) the variable margin on sales, which is determined by selling prices
and the cost of manufacturing and raw materials, has a large effect on
profit. This margin is, in turn, affected by a number of factors,
which include purchase prices of raw material, especially PVC resin,
competition, both domestic and international, competitive pricing,
direct labor costs, internal production methods and efficiencies, among
others.
(3) given the magnitude of the Company's fixed cost structure,
increases or decreases in these costs have a large impact on profits.
There are a number of large fixed or semi-fixed cost components, which
include salaries, indirect labor, and benefits, utilities, equipment
maintenance and repair, insurance, and depreciation. Thus changes in
rates or usage of these cost components can have a large effect on
profit.
Overall Summary of First Quarter 2004 Financial Results
For first quarter of 2004, sales increased 9% from last year, with
increases at both Plymouth Tapes and Brite-Line. Management believes
that increased sales levels are a critical component of improved
profitability.
Despite the increase in sales, overall costs in the first quarter of
2004 were relatively level with the first quarter of 2003, with a
decrease in fixed manufacturing costs and a relatively small increase
in selling, general and administrative costs (largely due to the sales
volume increases). The increased sales and improved variable margin
reduced the pre-tax loss by 42% from the first quarter of 2003 to 2004.
Sales and Margins
Sales increased at both Plymouth Tapes and Brite-Line as described
below:
First Quarter Sales
-------------------------
Increase
2004 2003 $ %
----------- ----------- ---------- --------
Plymouth Tapes. . . . . . $ 14,217,000 $ 13,204,000 1,013,000 7.7
Brite-Line Technologies . 605,000 339,000 266,000 78.5
----------- ----------- ----------
Total . . . . . . . . . . $ 14,822,000 $ 13,543,000 1,279,000 9.4
=========== =========== ==========
Plymouth Tapes sales in the automotive markets were approximately level
with 2003, increasing 0.5%, while sales in all other markets increased
in the first quarter of 2004 19.8% from the first quarter of 2003, due
largely to increases in the retail and wholesale electrical tape
markets. As was the case in the fourth quarter of 2003, this latter
increase results in part from the marketing and sales investments made
during the last two years. The 2004 sales originally denominated in
Euros were also aided by a favorable Euro/Dollar exchange rate, which
accounted for approximately $360,000 of the overall dollar sales
growth.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The sales increase at Brite-Line Technologies was largely in foreign
business, due mostly to some new European product approvals. The
favorable Euro/Dollar exchange rate also aided dollar denominated sales
by making these products more competitive in foreign markets.
Gross margin increased at both Plymouth Tapes and Brite-Line as
described below:
First Quarter Gross Margin
-------------------------
Increase
2004 2003 $ %
----------- ----------- ---------- --------
Plymouth Tapes. . . . . . $ 2,518,000 $ 1,902,000 616,000 32.4
% sales. . . . . . . . . 17.7 14.4
Brite-Line Technologies . (10,000) (130,000) 120,000 92.3
% sales. . . . . . . . . (1.7) (38.3)
Total . . . . . . . . . . $ 2,508,000 $ 1,772,000 736,000 41.5
% sales. . . . . . . . . 16.9 13.1
The largest factor in the dollar gross margin increase at Plymouth
Tapes was an increase in the standard variable margin (sales less
variable costs of manufacturing) that was contributed by the
incremental sales, accounting for approximately $470,000 of the dollar
increase. In addition, lower manufacturing overhead costs, due
partially to tight spending controls implemented over the last year,
contributed approximately $250,000 of increased margin. This consisted
of $216,000 of lower indirect manufacturing labor, $119,000 of lower
fringe expense, $44,000 of decreased insurance costs, a decrease in
depreciation of $28,000, and reduced other expenses of $26,000,
partially offset by $108,000 of higher utility costs and $72,000 of
increased purchases of indirect materials. There was also a small
offsetting increase of approximately $40,000 in PVC resin purchase
costs.
The major factor driving the gross margin increase at Brite-Line was
also the increased sales, which accounted for $104,000 of additional
margin, including an improvement in margin percentage compared to last
year. In addition, production yields improved $29,000, due partly to
process improvements, and increased production levels contributed
approximately $17,000 of higher manufacturing overhead absorption.
This was partially offset by slightly higher manufacturing overhead
expenses of $11,000, consisting mainly of increased indirect labor to
support the higher sales level.
Expenses
Selling, general and administrative expenses (SG&A) at both Plymouth
Tapes and Brite-Line is described below:
First Quarter SG&A
-------------------------
Increase (Decrease)
2004 2003 $ %
----------- ----------- ---------- --------
Plymouth Tapes. . . . . . $ 2,597,000 $ 2,460,000 137,000 5.6
% sales. . . . . . . . . 18.3 18.6
Brite-Line Technologies . 275,000 306,000 (31,000) (10.1)
% sales. . . . . . . . . 45.5 90.3
Total . . . . . . . . . . $ 2,872,000 $ 2,766,000 106,000 3.8
% sales. . . . . . . . . 19.4 20.4
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
At Plymouth Tapes, the major dollar increases in selling, general and
administrative expenses were related largely to sales volume increases,
and included higher freight costs of $84,000 to ship and distribute a
higher product volume, a $51,000 increase in salaries and fringe
benefits, $29,000 in travel expenses, and $24,000 in marketing
expenses, all largely due to increased sales support, higher bank fees
of $25,000, a $19,000 increase in commissions for the higher sales, and
a $13,000 increase in outside warehouse expenses to support increased
business activity. These increases were partially offset by a $48,000
decrease in professional and director fees, largely for decreased legal
support activities, a $21,000 reduction in bad debt expenses, and a
$19,000 decrease in insurance costs. At Brite-Line Technologies, the
decrease in selling, general and administrative expenses as a
percentage of sales in 2004 was due to both the lower level of expenses
and the higher sales in 2004. The major dollar decreases were a
$45,000 decrease in salaries and fringe, resulting from reduced staff,
and a $30,000 reduction in travel costs, partially offset by a $15,000
increase in freight to support the higher sales activity and a $13,000
increase in royalty and license fees.
Interest expense remained relatively stable in 2004 compared to 2003,
increasing 2.6% to $428,000 from $417,000 in 2003. Other income
decreased to $22,000 in 2004 compared to $41,000 in 2003, primarily due
to a lower level of foreign exchange gains.
Resulting Profit/Loss
The pre-tax and net losses are described below:
First Quarter
-------------------------
2004 2003
----------- -----------
Pre tax loss . . . . . . $ (770,000) $ (1,370,000)
Tax provision . . . . . . (27,000) (10,000)
----------- -----------
Net loss. . . . . . . . . $ (797,000) $ (1,380,000)
=========== ===========
In accordance with the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS109), a full valuation allowance
was recorded for any tax benefits generated from the Company's domestic
operations in 2004 and 2003, as they could not be carried back to
recover taxes paid and may not be offset by the reversal of future
taxable differences. The Company's liquidity situation at February 27,
2004 also provides significant negative evidence regarding its ability
to generate sufficient taxable income in the future to realize any
deferred tax benefit. The 2004 tax expense and the 2003 tax expense
were recorded for the Company's Spanish subsidiary.
Liquidity and Capital Resources
Overall Cash Position
The consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
Company's limited liquidity under existing debt arrangements, its
working capital deficit, the recent history of losses, the pension
payment due August 2004, and the overall risks associated with
achieving the 2004 plan may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time. The
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
As of February 27, 2004, the Company had approximately $80,000 of
unused borrowing capacity under its revolving line of credit with its
primary working capital lender, after consideration of collateral
limitations.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Debt Arrangements
Prior to December, 2002, the Company's domestic term debt agreements
had contained various covenants specifying certain financial
requirements, including minimum tangible net worth, fixed charge and
EBITDA coverage ratios, working capital and maximum ratio of total
liabilities to net worth. In addition, the revolving working capital
credit facility and the real estate term loan contain an acceleration
provision, which can be triggered if the lender determines that an
event of default has occurred.
As of each quarter end from September 1, 2000 through August 30, 2002,
the Company had been in violation of certain covenants of its term debt
facility and therefore, due to a cross default provision, the Company
had not been in compliance with a covenant under its revolving working
capital credit facility and real estate term loan. As a result, all of
the Company's term loans (except for that of its Spanish subsidiary)
had been classified as current liabilities on the Company's
Consolidated Balance Sheet at the end of each fiscal quarter end. In
addition, during July 2002, the Company received a demand from its
primary term debt lender for the payment of their outstanding loan
balances in the amount of $8,658,000, which represented the total of
all future payments and accumulated late fees, and a demand letter from
a smaller equipment lender for approximately $69,000 of payments due.
During 2002, the Company negotiated with these lenders and, in November
2002, reached formal agreement to obtain relief from their demands and
to restructure existing term debt facilities. Under the new
arrangements, the term debt lenders accepted significantly reduced
principal payments over the next three years, eliminated financial
covenants, waived existing defaults and rescinded demands for
accelerated payment, in return for enhanced collateral positions.
Based upon the new arrangements, future principal and interest payments
due on domestic term debt are as follows:
Fiscal 2004
Second Quarter . . . . . $ 644,000
Third Quarter. . . . . . 601,000
Fourth Quarter . . . . . 602,000
Fiscal 2005
First Quarter. . . . . . 448,000
Second Quarter . . . . . 444,000
Third Quarter. . . . . . 445,000
Fourth Quarter . . . . . 4,802,000
Fiscal 2006 . . . . . . . . 565,000
Fiscal 2007 . . . . . . . . 650,000
Fiscal 2008 . . . . . . . . $ 309,000
According to the revised loan agreements, approximately $4,565,000 of
the fourth quarter amount due in fiscal 2005 of $4,802,000 would have
extended maturity dates from April 1, 2006 to April 1, 2011 if the
following conditions are met: (1) the senior lien priority of the
mortgage on the Company's real property is limited to $2.0 million and
(2) the appraised fair market value of the real property subject to the
mortgage is not less than $2.5 million.
Cash Pension Contributions for Defined Benefit Plan
The Company received pension funding waivers from the Internal Revenue
Service (the "IRS") for $855,000 in 2002 and $1,030,000 (of the
$1,262,000 due) in 2003. These were waivers for plan years ending
November 30, 2001 and November 30, 2002, and were conditioned on the
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Company satisfying the minimum funding requirements for the plan years
ending November 30, 2003 and November 30, 2004, and on the waiver
amount of $1,030,000 being secured, in a manner acceptable to the
Pension Benefit Guaranty Corporations (the "PBGC") by September 10,
2004. The minimum funding payment due in August 2004 is $1,533,000.
Of this amount, approximately $1,048,000 is the current year
requirement and $485,000 is a result of previous funding waivers.
Management is developing longer range financial forecasts and has
engaged an ERISA attorney to work with the Pension Benefit Guaranty
Corporation (the "PBGC") to reschedule future minimum pension payments,
including the 2004 minimum pension payment of $1,533,000, in order to
provide working capital needed to operate profitability into future
years and ultimately meet all of its pension obligations. Should the
PBGC not reschedule payments and should the Company not be able to make
all of the 2004 minimum funding payment, the Company would be required
to notify the IRS, the Pension Benefit Guaranty Corporation, and the
Pension Plan participants. The IRS would assess an excise tax of 10%
on the amount of the payment shortfall, which would be currently
payable, and the Pension Benefit Guaranty Corporation would impose a
tax lien on the Company for the amount of payment shortfall. The
Pension Benefit Guaranty Corporation could choose to take one or more
additional actions, which could include having the Company continue
funding the plan at some level, asking the Company for additional
security, taking over the Plan, terminating the Plan, or other
possibilities. Some of these possible actions could have an adverse
impact on the Company's liquidity, financial position, and ability to
continue operations.
Working Capital
The Company's working capital position decreased from a negative
$4,350,000 at November 28, 2003 to a negative $4,664,000 at February
27, 2004, due to a $1,049,000 decrease in accounts receivable, a
$516,000 increase in short term debt, a $665,000 increase in accounts
payable, and a $6,000 decrease in cash. The $665,000 increase in
accounts payable compares to an increase of $1,846,000 in the first
quarter of 2003, and is due to (1) higher raw material purchases to
support an inventory build of $1,403,000 in anticipation of higher
second quarter sales and (2) somewhat slower payments during the
seasonally less active first quarter. Although the Company's first
quarter 2004 payments to suppliers were slower than the stated terms,
as has been seasonally normal, the Company continues to receive open
payment terms from its suppliers, largely net 30 days and net 60 days.
There are a small number of suppliers that require advance payment,
including some foreign suppliers and some suppliers that provide the
Company with custom manufactured raw materials and equipment.
Discontinuance of open terms from suppliers would have a material
adverse effect on the Company. The Company plans to increase sales and
profitability significantly in the second quarter of 2004 compared to
the first quarter of 2004, and to improve its payments to suppliers in
the second quarter, as in past years. The above decreases in working
capital were partially offset by a $1,403,000 increase in inventory, a
$385,000 decease in accrued expenses, due a $109,000 decrease in the
current portion of long term borrowings, and a $25,000 increase in
prepaid and other current assets.
Company Plans
For fiscal 2004, management plans to increase sales through additional
marketing investments in the wholesale and retail markets and continues
to control expenses to improve profitability and provide additional
cash from operating activities. Management also plans to work with a
variety of potential lending sources and existing lenders to acquire
additional financing, although the current focus is a financing
transaction which would increase equity and provide some working
capital needed for operations, but which would require discussion with
existing working capital and term debt lenders and modification of
existing loan agreements, including future payment schedules.
15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Management believes these plans are possible to achieve but the process
is in its early stages. It is management's belief that cash flows
generated from operations, and/or additional financing accompanied by a
restructuring of existing loan agreements, and/or a rescheduling of
pension obligations will be sufficient to meet the Company's liquidity
needs during fiscal 2004. Although management expects to be able to
accomplish its business and financing plans, there is no assurance that
it will be able to do so. The Company's plans depend upon many
factors. Failure to accomplish these plans could have an adverse
impact on the Company's liquidity, financial position, and ability to
continue operating as a going concern.
Cash Flows
Cash provided by operating activities was $51,000 in the first quarter
of 2004, compared to $327,000 in 2003. The major factors contributing
to cash provided by operating activities were a $1,155,000 decrease in
accounts receivable, depreciation and amortization of $681,000, an
increase in accounts payable and accrued expenses of $208,000, a
$129,000 increase in pension obligation, and a decrease in prepaid
expenses and other assets of $12,000, partially offset by an increase
in inventory of $1,322,000, a net loss of $797,000, and a decrease in
other liabilities of $15,000. This cash provided by operating
activities and additional short-term borrowings of $426,000 were used
to pay off term debt and capital leases of $460,000, and for capital
expenditures of $7,000.
Delphi Automotive
Since 1988, Plymouth Rubber has been the primary source of PVC (vinyl)
harness tapes for the North American wire harness operations of Delphi
Automotive Systems Corporation ("Delphi"), which was spun off from
General Motors as of May, 1999. Delphi accounted for approximately 32%
of the Company's net sales in fiscal 2003, and the current contract
extends to 2005. The Company is in frequent discussions with Delphi
about a variety of matters, including an extension of the existing
contract. As Delphi constitutes a significant percentage of the
Company's sales, loss of the business would have a material adverse
effect on the Company.
American Stock Exchange Compliance
On May 23, 2003, the Company received notification from the American
Stock Exchange (the "AMEX") that, as of the first quarter of fiscal
2003, the Company was not in compliance with AMEX listing standards,
due to shareholders' equity being less than $2,000,000 and losses from
continuing operations and/or net losses in two of its three most recent
fiscal years. In order to maintain the listing of its common stock on
AMEX, Plymouth was required to submit a plan by June 23, 2003, subject
to acceptance by AMEX, describing actions to be taken to bring it into
compliance with listing requirements within 18 months. On June 23,
2003 the Company submitted to the American Stock Exchange a plan
describing the program by which the Company will be brought back into
compliance with AMEX's listing standards by the end of November 2004.
On August 25, 2003, AMEX accepted this plan of compliance and granted
an extension of time through November 2004 to regain compliance,
subject to periodic review by AMEX during the extension period. The
Company is not currently in compliance with this listing standard.
On December 31, 2003, the Company received notification from the AMEX
that the Company's Class A Common Stock and Class B Common Stock are
each subject to delisting for having aggregate publicly held market
values of less than $1,000,000 for more than 90 consecutive days. In
order for the Company to maintain the listings of its Common Stock, it
was to submit a plan, subject to acceptance by AMEX, by January 26,
2004 advising the AMEX of actions to bring it into compliance with
continued listing standards by March 10, 2004. The Company has been
considering the feasibility of such a plan of compliance and has asked
AMEX for an extension of time to submit a compliance plan or pursue
alternatives to continued AMEX listing. The Company is not currently
in compliance with this listing standard.
16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Failure to make progress consistent with these listing standards could
result in the Company's shares being delisted from AMEX. Should this
occur, the Company would consider several options, including having its
common shares traded over the counter.
A summary of the Company's cash requirements related to its outstanding
long term debt, future minimum lease payments, and estimated pension
funding requirements are as follows:
Estimated
Operating Pension
Long Term Lease Funding
Fiscal Year: Debt Commitments Requirements Total
------------ ----------- ----------- -----------
2004. . . . . . . . . $ 1,414,000 $ 433,000 $ 1,580,000 $ 3,427,000
2005. . . . . . . . . 5,874,000 463,000 1,500,000 7,837,000
2006. . . . . . . . . 685,000 262,000 1,500,000 2,447,000
2007. . . . . . . . . 710,000 -- 1,820,000 2,530,000
2008. . . . . . . . . 308,000 -- 1,130,000 1,438,000
Thereafter. . . . . . -- -- -- --
------------ ----------- ----------- -----------
Total . . . . . . . . $ 8,991,000 $ 1,158,000 $ 7,530,000 $17,679,000
============ =========== =========== ===========
Critical Accounting Policies
The Company's significant accounting policies are discussed in Note 1
to the Consolidated Financial Statements. Certain accounting policies
are important to the portrayal of the Company's financial condition and
results of operations, and require management's subjective judgments.
These policies relate to the deferred tax asset valuation allowance,
inventory reserves, provision for doubtful accounts receivable and
impairment of long lived assets.
Recognition of a deferred tax asset is dependent on generating
sufficient future taxable income prior to the expiration of the tax
loss or credit carryforward. The Company has taken a full valuation
allowance for this tax benefit in accordance with the Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes".
Should the Company's liquidity situation improve, the amount of the
deferred tax asset considered realizable could be increased and could
result in a credit to income tax expense in the period such
determination was made.
The Company writes down its inventory for estimated obsolescence or
unmarketable inventory based upon the difference between the cost of
the inventory and the estimated net realizable value, based upon
assumptions about future demand and market pricing. If actual market
conditions are less favorable than those projected by management,
additional inventory write-downs may be required.
The Company periodically reviews the aging of accounts receivable to
identify potentially uncollectible accounts and establishes a reserve
based on experience and discussion with customers. Actual write-offs
could differ from bad debt reserves.
The Company reviews long-lived assets annually or whenever events of
circumstances indicate that the carrying amounts of the asset may not
be recoverable in accordance with SFAS No. 144. Impaired assets are
written down to their estimated fair value based on the best
information available to the Company.
Environmental
The Company has been named as a Potentially Responsible Party by the
United States Environmental Protection Agency in two ongoing claims
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"). The Company has also received
Notices of Responsibility under Massachusetts General Laws Chapter 21E
on two sites in Massachusetts. The Company has accrued $725,000 as of
February 27, 2004 to cover future
17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
environmental expenditures related to
these claims, which is net of $505,000 payments made to date. The
accrual represents the Company's estimate of the remaining remediation
costs based upon the best information currently available. Actual
future costs may be different from the amount accrued for as of
February 27, 2004 and may be affected by various factors, including
future testing, the remediation alternatives taken at the sites, and
actual cleanup costs. The final remediation costs could also be
subject to adjustment because of the long term nature of the cases,
legislative changes, insurance coverage, joint and several liability
provisions of CERCLA, and the Company's ability to successfully
negotiate an outcome similar to its previous experience in these
matters.
The Company has also received Notices of Responsibility under
Massachusetts General Laws Chapter 21E on three sites at the Company's
facilities in Canton, Massachusetts. In all of these cases, the
Company has taken a variety of actions towards the ultimate cleanup,
depending upon the status of each of the sites. These activities
include investigation, assessment, containment, and remediation. The
Company has accrued $291,000 as of February 27, 2004 to cover estimated
future environmental cleanup expenditures, which is net of $963,000
payments made to date. Actual future costs may be different from the
amount accrued for as of February 27, 2004.
Impact of New Accounting Pronouncements
In December 2003, the FASB issued Statement of Financial Accounting
Standards No. 132 (revised 2003), Employers' Disclosures about Pensions
and Other Postretirement Benefits. The provisions of that Statement do
not change the measurement and recognition provisions of FASB
Statements No. 87, Employers' Accounting for Pensions, No. 88,
Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions.
Statement 132(R) replaces FASB Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, and adds
among other things additional disclosure pertaining to plan assets,
benefit obligations, key assumptions and measurement dates. Effective
for interim periods beginning after December 15, 2003, the individual
elements of net periodic benefit costs, such as service cost, interest
cost, expected return on assets, amortization of prior service costs
and the Company's contribution paid, or expected to be paid during the
current fiscal year, if significantly different from amounts previously
stated, are required to be disclosed.
Safe Harbor Statement
Certain statements in this report, in the Company's press releases and
in oral statements made by or with the approval of an authorized
executive officer of the Company may constitute "forward-looking
statements" as that term is defined under the Private Securities
Litigation Reform Act of 1995. These may include statements
projecting, forecasting or estimating Company performance and industry
trends. The achievement of the projections, forecasts or estimates is
subject to certain risks and uncertainties. Actual results may differ
materially from those projected, forecast or estimated. The applicable
risks and uncertainties include general economic and industry
conditions that affect all international businesses, as well as matters
that are specific to the Company and the markets it serves. General
risks that may impact the achievement of such forecast include:
compliance with new laws and regulations, significant raw material
price fluctuations, changes in interest rates, currency exchange rate
fluctuations, limits on the repatriation of funds and political
uncertainty. Specific risks to the Company include: risk of recession
in the economies and /or markets in which its products are sold, risk
of the Company's working capital lender and real estate lender
demanding payment of outstanding balances, risk of not receiving waiver
from the government on the required contribution into the pension plan,
the concentration of a substantial percentage of the Company's sales
with a few major automotive customers, cost of raw materials, and
pricing pressures from competitors and customers
18
PLYMOUTH RUBBER COMPANY, INC.
Item 3. Quantitative and Qualitative Disclosure about Market Risks
At February 27, 2004, the carrying value of Company's debt totaled
$23.5 million, which approximated its fair value. This debt includes
amounts at both fixed and variable interest rates. For fixed rate
debt, interest rate changes affect the fair market value but do not
impact earnings or cash flows. Conversely, for floating rate debt,
interest rate changes generally do not affect the fair market value but
do impact earnings and cash flows, assuming other factors are held
constant.
At February 27, 2004, the Company had fixed rate debt of $8.3 million
and variable rate debt of $15.2 million. Holding other variables
constant (such as foreign exchange rates and debt levels) a one-
percentage point decrease in interest rates would increase the
unrealized fair market value of fixed rate debt by approximately
$121,000. The earnings and cash flows impact for the next year
resulting from a one percentage point increase in interest rates would
be approximately $152,000, holding other variables constant.
The U.S. dollar is the functional currency for the Company's U.S.
operations. For these operations, all gains and losses from foreign
currency transactions are included in income currently. The Company
operates a wholly owned subsidiary in Spain, which accounted for 13.8%
of the Company's revenues in fiscal 2003. The functional currency of
this subsidiary was the Peseta and is the Euro in 2003. Because 100%
of the subsidiary's domestic and export sales are denominated in Euros,
changes in the Euro exchange rate relative to other currencies does not
materially affect the subsidiary's earnings. However changes in the
Euro/Dollar exchange rate could affect the reporting of the
subsidiary's earnings in the Consolidated Statement of Operations. The
Company occasionally enters into purchase or sales contracts in
currencies other than the functional currency, and hedges only those
transactions that are of significant size. The Company did not enter
into any foreign currency forward contracts in 2003 and 2002 and did
not have any forward contracts outstanding at the end of 2003 and 2002.
Item 4. Controls and Procedures
(a) Disclosure controls and procedures. As of the end of the period
covered by this report, we evaluated the effectiveness of the design
and operation of our disclosure controls and procedures. Our
disclosure controls and procedures are the controls and other
procedures that we designed to ensure that we record, process,
summarize and report in a timely manner the information we must
disclose in reports that we file with or submit to the SEC. Our
disclosure controls and procedures include our internal controls.
Maurice J. Hamilburg, President and Co-Chief Executive Officer, Joseph
D. Hamilburg, Chairman and Co-Chief Executive Officer, and Joseph J.
Berns, Vice President of Finance and Chief Financial Officer supervised
and participated in this evaluation. Based on this evaluation, Maurice
J. Hamilburg, Joseph D. Hamilburg, and Joseph J. Berns, concluded
that, as of the date of their evaluation, our disclosure controls and
procedures were effective.
(b) Internal controls. There has been no change in our internal
controls over financial reporting during our most recent fiscal quarter
that has materially affected, or is reasonable likely to materially
affect those controls.
19
PLYMOUTH RUBBER COMPANY, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the information contained in Item 3 of
the Company's Annual Report on Form 10-K for its fiscal
year ended November 28, 2003, and in Note 11 of the Notes
To Consolidated Financial Statements contained in said
report.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits
(b) Not Applicable
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereto duly authorized.
Plymouth Rubber Company, Inc.
(Registrant)
/s/ Joseph J. Berns
------------------------
Joseph J. Berns
Vice President - Finance
Date: April 12, 2004
21
Exhibit
No. Description
2 Not Applicable.
3.1 Restated Articles of Organization -- incorporated by reference to
Exhibit 3.1 of the Company's Annual Report on Form 10-K for the
year ended December 2, 1994.
3.2 By Laws, as amended -- incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K for the year ended
November 26, 1993.
4.1 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 29, 1995 --
incorporated by reference to Exhibit 4.8 to the Quarterly Report
on Form 10-Q for the Quarter ended March 1, 1996.
4.2 Master Security Agreement between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated December 29, 1995 --
incorporated by reference to Exhibit 4.8 to the Quarterly Report
on Form 10-Q for the quarter ended March 1, 1996.
4.3 Demand Note between Plymouth Rubber Company, Inc. and LaSalle
National Bank dated June 6, 1996 -- incorporated by reference to
Exhibit 2.1 to the report on Form 8-K with cover page dated June
6, 1996.
4.4 Loan and Security Agreement between Plymouth Rubber Company, Inc.
and LaSalle National Bank dated June 6, 1996 -- incorporated by
reference to Exhibit 2.2 to the report on Form 8-K with cover
page dated June 6, 1996.
4.5 Amendment to Master Security Agreement between Plymouth Rubber
Company, Inc. and General Electric Capital Corporation dated
February 19, 1997 -- incorporated by reference to Exhibit 4.10
to the Quarterly Report on Form 10-Q for the quarter ended
February 25, 1997.
4.6 Master Security Agreement between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated January 29, 1997 --
incorporated by reference to Exhibit 4.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 25,
1997.
4.7 Demand Note between Brite-Line Technologies, Inc. and LaSalle
National Bank dated February 28, 1997 -- incorporated by
reference to Exhibit 4.13 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 30, 1997.
4.8 Loan and Security Agreement between Brite-Line Technologies, Inc.
and LaSalle National Bank dated February 25, 1997 --
incorporated by reference to Exhibit 4.14 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 30,
1997.
4.9 Continuing Unconditional Guaranty between Brite-Line Technologies,
Inc. LaSalle National Bank dated February 25, 1997 --
incorporated by reference to Exhibit 4.15 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 30,
1997.
4.10 Amendment to Loan and Security Agreement between Plymouth Rubber
Company, Inc. and LaSalle National Bank dated May 7, 1997 --
incorporated by reference to Exhibit 4.11 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 30,
1997.
22
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
No. Description
4.11 Continuing Unconditional Guaranty between Plymouth Rubber Company,
Inc. and LaSalle National Bank dated March 20, 1997 --
incorporated by reference to Exhibit 4.12 to the Company's
Quarterly Report on Form 10-Q or the quarter ended May 30,
1997.
4.12 Public Deed which contains the loan guaranteed by mortgage and
granted between Plymouth Rubber Europa, S.A. and Caja de Ahorros
Municipal de Vigo, Banco de Bilbao, and Vizcaya y Banco de
Comercio dated April 11, 1997 -- incorporated by reference to
Exhibit 4.13 to the Company's Quarterly Report on Form 10-Q for
the quarter ended May 30, 1997.
4.13 Corporate Guaranty between Plymouth Rubber Company, Inc. and Caja
de Ahorros Municipal de Vigo, Banco de Bilbao, and Vizcaya y
Banco de Comercio dated April 11, 1997 -- incorporated by
reference to Exhibit 4.14 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 30, 1997.
4.14 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 3, 1997 -
incorporated by reference to Exhibit 4.14 to the Company's
Annual Report on Form 10-K for the year ended November 27, 1998.
4.15 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated April 13, 1998 - incorporated
by reference to Exhibit 4.15 to the Company's Annual Report on
Form 10-K for the year ended November 27, 1998.
4.16 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 12, 1998 -
incorporated by reference to Exhibit 4.16 to the Company's
report on Form 10-K for the year ended November 27, 1998.
4.17 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 25, 1998 -
incorporated by reference to Exhibit 4.17 to the Company's
report on Form 10-K for the year ended November 27, 1998.
4.18 Amendments to Loan and Security Agreement between Plymouth Rubber
Company, Inc., and LaSalle National Bank dated July 15, 1998 and
February 18, 1999 - incorporated by reference to Exhibit 4.18 to
the Company's report on Form 10-Q for the quarter ended February
26, 1999.
4.19 Amendment to Loan and Security Agreement between Brite-Line
Technologies, Inc., and LaSalle National Bank dated February 18,
1999 - incorporated by reference to Exhibit 4.19 to the
Company's report on Form 10-Q for the quarter ended February 26,
1999.
4.20 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated June 29, 1999 - incorporated
by reference to Exhibit 4.20 to the Company's report on Form 10-
Q for the quarter ended August 26, 1999.
4.21 First Amended and Restated Schedule A - Special Provisions to Loan
and Security Agreement between Plymouth Rubber Company, Inc.,
and LaSalle National Bank dated June 16, 1999 - incorporated by
reference to Exhibit 4.21 to the Company's report on Form 10-Q
for the quarter ended March 3, 2000.
23
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
No. Description
4.22 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 29, 1999 -
incorporated by reference to Exhibit 4.22 to the Company's
report on Form 10-Q for the quarter ended March 3, 2000.
10.1 1982 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit 10.1 of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
10.2 General Form of Deferred Compensation Agreement entered into
between the Company and certain officers -- incorporated by
reference to Exhibit 10.2 of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
10.3 1992 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit 10.4 of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
10.4 1995 Non-Employee Director Stock Option Plan -- incorporated by
reference to Exhibit (4.3) of the Company's Registration
Statement on Form S-8 dated May 4, 1995.
10.5 1995 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (4.4) of the Company's Registration
Statement on Form S-8 dated May 4, 1995.
10.6 Second Modification Agreement between Plymouth Rubber Company,
Inc. and General Electric Capital Corporation --incorporated by
reference to Exhibit 99.2 of the Company's Current Report on
Form 8-K dated December 16, 2003
10.8 Security Agreement by and between Plymouth Rubber Company, Inc.,
General Electric Capital Corporation, The CIT Group/Equipment
Financing, Inc. and Banknorth, N.A. Corporation --incorporated
by reference to Exhibit 99.3 of the Company's Current Report on
Form 8-K dated December 16, 2003.
10.9 Patent Security Agreement by and between Plymouth Rubber Company,
Inc., General Electric Capital Corporation, The CIT
Group/Equipment Financing, Inc. and Banknorth, N.A. --
incorporated by reference to Exhibit 99.4 of the Company's
Current Report on Form 8-K dated December 16, 2003.
10.10 Trademark Security Agreement by and between Plymouth Rubber
Company, Inc., General Electric Capital Corporation, The CIT
Group/Equipment Financing, Inc. and Banknorth, N.A. --
incorporated by reference to Exhibit 99.5 of the Company's
Current Report on Form 8-K dated December 16, 2003.
10.11 Modification Agreement between Plymouth Rubber Company, Inc. and
Banknorth Leasing Corporation --incorporated by reference to
Exhibit 99.6 of the Company's Current Report on Form 8-K dated
December 16, 2003.
10.12 Mortgage and Assignment of Leases and Rents by Plymouth Rubber
Company, Inc. to and for the benefit of General Electric Capital
Corporation, The CIT Group/Equipment Financing, Inc. and
Banknorth, N.A. --incorporated by reference to Exhibit 99.7 of
the Company's Current Report on Form 8-K dated December 16,
2003.
24
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
No. Description
10.13 First Modification to Mortgage and Assignments of Leases and
Rents to and for the benefit of General Electric Capital
Corporation, The CIT Group/Equipment Financing, Inc. and
Banknorth, N.A. --incorporated by reference to Exhibit 99.8 of
the Company's Current Report on Form 8-K dated December 16, 2003
31.1 Certification of President and Co-Chief Operating Officer
Pursuant to Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of Chairman and Co-Chief Operating Officer
Pursuant to Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.3 Certification of Vice President - Finance and Chief Financial
Officer Pursuant to Rule 13a-14(a) to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
25